The US Futures Exchange has announced plans to list foreign exchange futures contracts, with daily settlements to spot prices, that replicate spot market contracts and trade on a 23-hour basis.
Six US dollar pairs sized for retail customers will be offered beginning September 21, while to accommodate its new foreign exchange contracts, USFE will resume 23-hour operations on September 17.
The USFE's Spot Equivalent Future contract is designed automatically to allocate the cost-of-carry inherent in holding a spot position overnight via an end of day cash payment, making an SEF position economically identical to a spot position. This differs considerably from traditional FX futures contracts, which have quarterly expiries and include the cost-of-carry basis in the price of the contracts.
'Global foreign exchange trading is exploding, with the majority of business occurring in over-the-counter markets,' says USFE chief executive Satish Nandapurkar. 'At the same time, there is a growing need among retail traders for the customer protections provided by a regulated exchange. SEF contracts offer both the familiarity of spot market trading and the transparent qualities of an exchange marketplace, combining the best of both environments.'
The six initial currency pair contracts include the US dollar against the euro, yen, sterling, the Swiss franc, Canadian dollar and Australian dollar. SEF contracts will be quoted exactly as spot prices appear in over-the-counter markets and will be sized at 50,000 units of the denominator currency.
'SEF contracts are a significant step forward for derivatives trading, providing an explicit link between the futures and spot markets,' says Nandapurkar. 'USFE has worked closely with key back office vendors in a joint effort to ensure the seamless implementation of this innovative new product.'
The Chicago-based US Futures Exchange, created in its present form in 2006 following Man Group's investment in the former Eurex US, offers specialised products to meet the market demands of retail, hedge fund and institutional customers in a fully-regulated, centrally-cleared futures and options exchange.